TVS Srichakra, one of the largest suppliers of two & three wheeler tyres in India and part of US $ 2.2 billion Auto Ancillary group TVS, is poised for accelerated growth in next few years in view of impressive offtake from OEMs, coupled with increased demand from replacement market and expected recovery in overseas markets.
Company manufactures complete range of two and three wheeler tyres & tubes for domestic OEMs such as TVS Motors, Hero Honda, Bajaj Auto, Yamaha Motors etc. It also manufactures Industrial Pneumatic Tyres, Flotation, Motorgrader, Farm & Implement Tyres, Skid Steer Tyres, Multipurpose Tyres,Vintage Tyres and off-the-highway tyres.
Demand for tyres is going to remain buoyant in view of
» Strong volume growth of ~20-25% in 2 wheeler industry (led by sustained economic growth and stepped up investment in road infrastructure) as evident from the fact that all OEMs are on expansion spree.
» Rural and semi-urban market is expected to become new growth engines for not only vehicles but also for farm inputs.
Company, with continued thrust on retaining respective share of business with major OEs and making further in-roads in new OEs thru continued thrust on innovation in new product development, is expected to garner larger share of this growing market.
2 wheeler tyres come up for replacement within 2-3 years. After Sales / Replacement segment will be very high growth (in view continuously growing 2/3 wheeler population) and lucrative market, as profit margin is better. Company derives as much as 65% of its revenue comes from this segment. With massive brand building exercise and continued focus on enhancing dealer network (> 2,050 dealers and 23 depots across the country), company is well set to capitalize the opportunities provided by sustained growth in replacement demand.
TVS Srichakra exports large tyres meant for off-the-highway vehicles to companies like Caterpillar, John Deere, etc. In fact, it is a global player exporting to USA, Europe, Africa, South America and South East Asia. Export (contributing 13% of revenues) are expected to grow at > 25% as
» TVS is looking at introducing new technologies like including radialisation of two wheeler tyres, tubeless tyres, and newer segments in off-road tyres, exclusively targeted at export market.
» Since trade stocks have come down during the recession period, there will be buying spree in next few quarters.
Buoyed by impressive off take from all segments, company is augmenting its capacity further by 25%. New plant in Uttaranchal was set up in July 2009. While Phase I has become operational during FY 2010, total capacity of this plant is 4 million tyres. Besides, company is also adding capacity at Madurai and Uttaranchal during FY 2011.
At CMP of Rs. 325/-, the share (Rs. 10/-) is trading at 6.3 times FY 2011 expected EPS of Rs. 52/- and 5.4 times FY 2012 expected EPS of Rs. 61/-. In view of excellent future prospects, we recommend to “BUY” the share at CMP.